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Good morning, everybody, and thank you for attending this conference call. This is our year-end report 2022. And well, I hope you all have read it this morning. So Nepa in brief, just so you know what we are doing. We help marketeers to understand the high level impact of marketing investment. And what does that mean? We work mainly with what we call the upper funnel of marketing, which is the strategic vision about what to do in order to [indiscernible]. We measure about 7,500 brands in 60 markets. And we then help the brands to optimize their investments in the different channels and in how they press themselves in order to retain maximum track in the kids and win as many to take up.
How do we do that? We work with 3 main pilots in our offer, which is brand tracking, campaign evaluation, and marketing mix modeling. Brand tracking is based at our recurring business and campaign evaluation is a deep dive into every campaign in order to evaluate both the investment in media, but also in how the creative has worked or not worked and what parts of the trade has been the success factors in order to strengthen them further down the line.
We combine these things, these 3. And by that, we can help marketeers to improve their campaigns and also their strategic pros in conquering consumers and markets. Who do we work with? We work with about -- with more than 300 clients in total on 60 markets, and the basis of our business are long-term contracts that we are mainly around brand tracking.
Our financial performance has been 9.2% CAGR from -- since we went on the stock exchange in 2016 and 9.4% adjusted EBIT margin for 2022.
Operating cash flow, SEK 15.9 million in 2022. And at the end of the year, we had SEK 63.8 million in the bank. So we are now executing on the expansion phase, meaning that we are tweaking our business more towards recurring and growing it with semi-global or global clients, which is our focus area. Then we are in a very good financial position to do so.
What we have seen in the last year was that our marketing optimization revenues were growing very good. And at the same time, as our ad hoc revenue are going down, which is exactly in line with our strategy. And we also see that between quarter 4 2020 -- when we compare quarter 4 2021, with quarter 4 2022, we see a slight growth in optimization and downturn in ad hoc. And you also need to remember that quarter 4 2021 was really a big difference in the economic outlook of the world compared to the economic outlook in quarter 4 2022. So I feel that it was a quite okay performance given that situation even if I would have liked to see other numbers, of course.
If we break down the profitability a little bit, you see that we have a lower gross margin in quarter 4 2022. It was due to a lower proportion of high-margin of revenues compared to quarter 1 2021. And that is the general trend we will see if we go for more recurring because the relative part share of data cost in the recurring projects are higher. At the same time, as the workout on the organization is relatively lower. So we will need to work consulting hours to produce the revenue. And then also, of course, and during quarter 4, they have started a pressure on ad hoc prices, especially when it came to the large global consumer brands. And yes, we have some discounted projects strategically important to do these ad hocs because they often are [indiscernible] regularly our entry point into selling larger trackers. Big brands like to test the client with nonrecurring projects before they give you the trust to run that core -- their core brands on a recurrent basis, which is not strange, but that's -- so we have to live with that.
And we also see exchange rate effects from survey data purchased in foreign currency of course, and it's impacting us. It's important to say, though, that prices, list prices have not changed significantly there. So even though prices in ad hoc, we see a lot of inflation elsewhere. So we haven't noticed that we haven't been hit by that. But of course, the [indiscernible] is grown is a challenge for us when it comes to data costs.
On the other hand, the more we can sell in the future globally, of course, then we have lower cost of work, which is positive. Yes. Then, of course, during the quarter, we had a big cost adjustment program. Totally, it was SEK 31.2 million, we -- on an annual basis. So -- which will be gradually visible from January 2023. Basically, also it will be visible in quarter 1 because we felt that we had started for higher growth and the best growth is not realistic with the market outlook we saw during the beginning end of quarter 3, beginning of quarter 4. So we have done that now, and it is showing effect.
What we also have done during the quarter was what we already talked about in the last report is that we have passed out, finally, the salespeople from the existing organization. Before we had likely unified sales delivery roles. Basically, our consulting organization was a blend of everything. And now we have made it very clear that we have one part, which is still a little bit of marketing. And then we have what we call marketing science, which is all our, yes, customers -- that's our customer success/consulting team helping our clients with what they have always done. But by doing so, this move and also it brings that very clear KPIs, we have a better control about what is done and how we resource our projects. With that new organization, we also, for the first time, the possibility to focus on selling our core products within marketing organization. So because we have a more strategic sale, and that will show effect during this year. And the main effort will be on brand tracking and complementing with campaign measurement and marketing mix modeling.
So then the cost savings programs before, SEK 7.2 million partly in November. It was the easy cut then more the bigger one and more strategic one in December that amounts to about 11% of quarter 4 OpEx if you analyze it. Then we had out the restructuring costs were a bit lower than initially estimated. And it was around SEK 8 million estimate, and we ended up with SEK 4.5 million, which was a good work from the team and now we are in a much, much better position for the current market conditions. And of course, if necessary, if the market condition should deteriorate further, we are both able and willing to take further measures.
What we will do going forward is that we right now on the quarter 1 and 2, we'll have a high focus on building the sales organization and getting, for example, our [ SDRs ], those people are using the extra layer of leads up and running. And we are also increasing our product innovation and tech development efforts but within the existing resources and within the existing activation or investments that you already have seen during the last year.
And when it comes to outlook, we see that we have a single-digit growth compared to the same period 2022 when it comes to marketing optimization, which we really -- which we are focused on which is good because we meet the last -- first quarter of 2022 was a really strong quarter. And we can still produce growth. At the same time, we see the group net sales is going down a little bit and -- which is due to that the market ad hoc is quite dry, I would say. It's not so much. And of course, we cannot sell at any price. We also have quite -- still a very good financial position, as it was unchanged from the closing balance of quarter 4 2022 as we speak. Yes, please, questions. And I hope you [Technical Difficulty].
[Operator Instructions]. The next question comes from Jesper Von Koch from Redeye.
Good morning, guys. So let's start with a broad question about your strategy. I mean, where is your current focus currently? Like do you expect to be able to grow and cut costs in time or like what is the main priority of the business at the moment?
The main priority of the business is to grow marketing optimization and the further development of the product in that area. So we stay on top of the game in the competition. So -- and of course, we want to grow that part. But when we focus on that with our strategic sales that has a consequence on our ad hoc business, which then will develop as it develops because it's not a focus area. We, of course, still do the project we can easily get, but there's those strategic efforts to -- and we are by that risking that we are -- that might slow down our sales growth or even that it is a bit going down. But I don't think that it's -- we are -- now we are talking about a very minor downturn because, yes, we don't focus on it. But the focus is on the growing MO brand tracking is the recurring business.
All right. And I mean, did you -- you talk about growth, obviously. But do you think in terms of like profitable growth? Or because I mean, considering also today's market reaction and also like the last years, I guess, disbelief from the stock market. I think what many investors lack is the focus on profitable growth that they saw during 2021. But even if that period contained like too little investments. But I think what people want to see some kind of balance? Like how do you think about the business in terms of profitable growth.
I think we will see profitable growth very soon again because there's no way you can change to what's more strategic sales in the marketing optimization and recurring without giving up something else, especially if you don't want to spend a lot of money at the same time. I think we have done that changed quite well. And I think the results of that will soon show, it would have shown earlier if we wouldn't have got a recession against us in this move. Nonetheless, I think we will see very soon that it will change.
Okay. Okay. And if we go more into detail, I mean, recurring revenues grew by approximately 2% and marketing optimization by 11% year-on-year. But what -- could you say anything like what was the growth of recurring revenues in marketing optimization?
I don't think we published that number. Yes, there. Not yet. But soon.
All right. All right. And then the outlook of single-digit growth in like marketing optimization in like in Q1, so far, are you talking about like a high mid- or low single-digit growth?
Just repeat it, please, I didn't really...
In the outlook, you state that you have so far seen single-digit growth for marketing optimization in Q1, are we talking about high mid- or low single-digit growth?
I think we do not either publish that number yet. We will get better soon with these details.
Okay.
I don't see that. In the quarter 1 report, we will be more -- those things would change a little bit. We are getting there. We are trying now. This is the first time we give an outlook at all closer to the report date this time. And we have also -- we have been building this kind of reporting internally now, which will give us the possibility also to inform the market, hopefully, much, much earlier very soon about how it is going.
Okay. And then in your last conference call, it appeared as if there were many annual contracts that were about to be renewed with a positive price adjustment in Q4. So was this the case? And if so, like what was the impact on some kind of ARR equivalent.
Well, we were -- we have successfully renewed most of those contracts. But I can't say exactly how much the price wise it were, but they were substantial. So -- and they will help us to -- in this year to keep our margins okay.
Okay. But then -- and as you say, you successfully renewed most of these contracts, you saw some churn also in comparison.
No. I wouldn't say we saw some churn, but like when we -- sometimes, when you go -- when you have a contract that's annually, at some point in time, maybe clients choose a well, I don't want to have it like annually more I will reduce. So I want to change every -- the ability to change every third month or something like that. Then the contract is still there, but there's a little bit risk.Let's say, that there's not real, but it has, of course, the economic situation that affects those things.
Not any churn.
No churn, but -- and not a higher risk now than it has been before, but yes. But the recession is -- please?
Yes. So like not any churn, but some customers changing from annual contracts to quarterly contracts as if I understand it correctly.
Yes, exactly. Because usually, our contracts have written like this that you have 1 year or 2 years and then they go over if there's not a new yearly contract within the automatically go to 3 months or 6 months period. So normally, we do buy new contracts, but then it's a little bit to the customer, of course, because it's always a discussion.
Okay. Okay. And then regarding your cost base, like including both OpEx and CapEx what do you think would be a normalized quarterly level going forward? And also like when will the full effects of the cost savings program be in place.
Well, I think the full effect of cost saving program is -- will be visible -- the full effect, 100% of it is visible in quarter 2, start of quarter 2, the first month, of course, April, sorry, April. So that will be the first month because like that is how we have like changes in personnel, that's what, how it takes. It takes usually 3 months at worst.
Yes. Yes. And just wondering about also like the average number of employees still at record high, 325 in the quarter. And I know that you made like the cost savings like in the latter stage of the quarter, but could you just elaborate on the number of employees that you expect to have going forward? And also perhaps because I know that you may have like some people in India and so on like how you think of the distribution on these.
Well, the cost saving programs program was mainly -- was focused on the non-Indian part of organization because that's where the costs are really high. So that's where we save the money. By that, the amount of people will be a little bit less, but amount, the costs are higher. So that's why we focused. Then of course, when we are. So I think the -- if you look at Nepa, I think it will be around 300. Sometimes it will be a little bit more, some a little bit less because, of course, you have people going in and out because they are on paternity leave and all this stuff, we not -- really can't control. But that's about that we should.
All right. Good. And is that -- I mean, also thinking like more like long term and not only now and you do this like cost cut and so on. Do you think that like around 300 full-time employees that would be kind of a stable figure. And that is -- so if we think about Nepa as investment case or like, yes, whatever, like you should think about that as a stable level and then you will grow your revenues and start scaling your margins from that 300 full-time employee base. Is that -- like how we should think of it?
Well, I would say that it seems like about 200 of the people we have that bench like central resources, that is our tech. That's our global delivery, which is basically the people working around our machines, you can say our production and they are very scalable. But then you have like around 100 or maybe a little bit less people that our customer success and consulting and sales and we have to grow the amount of people. If we grow, then I -- then over time, we will need less and less consultants. And hopefully, our systems and the delivery in our dashboards to our clients will be better and better. And by that, we will also need less people working with customer success. But there's also a little bit of an insecurity how our clients are what they want because like when we look at -- when -- we have clients that absolutely do want our help all the time. And either we want to serve them or -- with that help or that is like people helping them like holding their hand in doing research or -- and doing analytics and -- or we can't help them. And I think that -- and that is like maybe companies that are less forward leaning in the way of working or they really want that kind of expertise. And I don't know how that will develop over time, like in 5 years, what we can expect. I thought we would see that, for example, e-commerce companies would rather not want that kind of help, but they also want it at a certain point in time. when it's getting -- when they are getting out of their comfort zone of their own data.
So I think reading consumer -- reading the minds of consumers and interpret -- gives the interpretation to what that means for and how you should behave. Is it really something AI is really great at yet. So I think there's a need for that. But we are trying to move the needle towards making that more and more efficient at the same time as we deliver better products to our clients, and that will make them more doing things themselves basically. So, yes.
And then also I think connected to my previous question. Like about your financial target. I know that you currently have some quite vague financial targets like exceeding 20% EBIT margin in the midterm or long term, I think, and then like growing faster than -- or the fastest in the industry. But do you plan to make any adjustments so that these would be more precise and more dedicated to a certain like point in time because I think this is what investors currently lack is that these current financial targets are too vague so that they don't view it as strong indicators of what the future might be. If you could just elaborate on how you think about that.
I totally agree with the investors. I -- and with a view, and I think that we should try to give these kind of targets at least short term. I think this would be so far have said is more our mid or long-term goals. And of course, when you look at our performance now, then you see think like where are we? But I think that we quite soon, maybe in the end of this year, we will be able to -- when we have like learned how our new sales organization is working and what is working well, what is not working well? What kind of -- yes, so we get a better understanding of what we can actually produce, then I think we will be able to give these targets. Yes. Right now...
New and smart financial targets by the end of 2023.
I think so. That should be possible, yes. Then we know like, of course, we have to learn that as well, but we will.
All right. Good. And then moving on, I mean, in Q4, you said that -- or restructuring costs amounted to SEK 4.5 million versus SEK 8 million in December. Should we expect that no more restructuring costs in Q1 like if considering like not any more cost cuts being made.
In Q1, no, if we don't do something in the next 10 days, no?
Okay. Good. And then you said that like your COGS or like cost of goods sold, that was like negatively affected or heightened by currency effects. Like how big was the currency effect on that?
I don't remember, I think it was about 3%, 4% was the exchange rate change. So that was quite substantial when you look at our -- the total data costs we have.
Do you mean like percentage points like instead of 76% or 75% in gross margin, it was now 72%. Is that?
No, no, no. I mean that if you look at our data costs, and they were like at least 4% higher because of the only the FX effect.
Okay. Okay. So taking those like SEK 21 million, I think it was in direct costs, like 3% or 4% of that was the FX effect. Okay, good. And then could you also talk more about the -- like the current environment for ad hoc project like how big are the discounts typically? And also regarding the discounted projects that you referred to in the report. Is this only ad hoc revenues or also recurring revenues?
It's only ad hoc revenues, so it's only that it's only big international projects and not only big international clients. Otherwise, we wouldn't do it. If they are not strategically important for us, we wouldn't do that and reduce. And often, it's more -- for example, that you reduce the client's risk they want fixed price and then we cannot like say that, okay, but if our data cost will be higher than expected, then they say, that's your problem instead of like before, where we could say, well, we would charge you another, whatever, that I think is a difference there.
Okay. And the this strategic product should we interpret that as it's an ad hoc project for now, for like a very big probable client that you aim to move into like recurring revenues in like marketing optimization and the brand tracker.
That is our target, and it's not what we always succeed with that, but that is the ambition. Because like when you have a client let's say,Coca-Cola or someone, which is not our client, but just as an example, then -- and we would then you want to have a one-off project with us to see rather how does Nepa work? Do they like the people? Do they like the result of the work we do, and to see good quality and all that. And before they even put us on the roaster for the RFP for the brand tracker, for example. So that's how -- that's why you do this kind of project.
Okay. Good. And then, I mean, in your last report, you said that you have not been good enough in collecting your invoices. Which meant that your like accounts payable was higher than you wanted. But looking at accounts payable in this quarter, it's at a similar level as in Q3. Like do you expect this to come down in Q1 and like be converted into cash?
Well, as we stated in the report, our cash position now remains unchanged against the end of the quarter 4. So something we have done better obviously. And we have a new CFO, Sonja, I think, 3 weeks back. So I think that -- I think that's one of her focus areas to get better cash management in the company.
Okay. So you at least aim to bring the current like accounts receivables you want that to be reduced because it is higher than it was in like Q2 and before.
Yes, of course.
Okay, you want that.
But then you also must think about that in a recession and with higher interest rates, the bank or with interest rates in the bank for your cash, then both we and our clients try to pay as late as possible. So like it's not -- it's not an easy task. Let's say...
Yes, I can imagine.
So everybody tries everyone. Let's say like that.
Yes. Yes. I see. And then, I mean, you currently have a cash position of SEK 64 million, which is quite substantial in relation to like your market cap and so on. Like -- and looking at your net finance for Q4, which was negative, I mean, do you currently get any interest rate on your cash position? I mean, considering that it would likely boost your net profit margin by almost 1 percentage point like and if no, do you plan to make this happen?
Of course, we have talked to our bank as they put in our cash, not all of it, but most of it into an account where we have -- where we get interest, Yes. And of course, we always look at trying to improve that as well.
Okay, good. And then -- so what was the reason for you having a net -- like a net financial -- like a negative net financials in the quarter.
I would say that we had a little bit too high cost. I don't -- that's why we did the cost savings program.
No. I mean net financial costs, like below the operating costs.
Okay. Okay. Now I get it. I think our financial that must be exchange rate -- exchange rate synergies because we have a loan. But I think maybe Sonja or Elin can explain that to you. I think it is a loan to our U.S. company. And depending on how the exchange rate [indiscernible] always affect us a little bit.
Sorry, Sonja and Elin here, so I will hand over to the word to Elin.
Yes. So those are unrealized exchange losses on loans, mainly in the company. So they're not really realized, yes, it's just mainly the U.S. dollar fluctuation from last year.
Okay. Okay. And well, I have you on the line like how much like positive interest do you expect to get like on a quarterly basis from your cash position?
I'm not sure exactly. We put some of our cash basis into savings account with the interest rate, I think is at 1.6%. But we're looking into it we should also place some more into even higher interest rate bank account.
All right. All right. Thanks for all the answers that's all for me.
Thank you, Jesper. Very good questions.
There are no more questions at this time. So I hand the conference back to the speakers for any questions from the web.
It's Edvard here from Investor Relations. And it seems that we don't have any questions from the chat. So I hand it back to you, Ulrich.
Well, I thank everyone for participating today, and I hope we will present like better or more from a financial and success point of view, better report. So we are working hard on that. Thank you very, very much.